Are China’s factories running out of power?
Why has Global Sticks, a manufacturer of wooden ice cream sticks, moving from Dalian, China, to Thunder Bay, Ontario? It’s the kind of low margin manufacturing that is never supposed to come back after it leaves North America for cheaper labour abroad.
When the price and availability of energy start to dominate your business plan, you say goodbye to your inexpensive Chinese labor force, and pack up and leave.
Of course, not everybody can leave. Those that stay are bracing for what China’s Electricity Association is warning will be the nation’s largest power shortage in years this summer. As many as 20 provinces and territories have already been put on power rationing, including the country’s industrial heartland.
The provincial government in Zhejiang, a manufacturing hub close to Shanghai, has notified 44 major industries about limits on their power consumption. Companies that exceed these limits face prohibitive power tariffs that would threaten much of the region’s low margin manufacturing. The story isn’t any different in Guangdong, south China’s manufacturing hub. Its industries must also cope with limits on power usage.
It won’t be long before all that power rationing starts to curb economic growth, particularly in the power-intensive centres of China’s industrial production such as aluminum and steel.